July 2008

July 24, 2008

In this current climate of acute economic uncertainty, one characterized by five bank failures so far this year (with more expected to come), income investors are finding themselves increasingly perplexed as to where to turn.While these folks typically regard the stock market the way Dracula regards a big, fat piece of garlic, a bit of “thinking outside of the box” may be in order so that your portfolio is diversified, enjoys some safety, and still contains vehicles prepared to pay you a respectable yield.To that end, allow me to introduce to you…the stock market.Seriously, throughout all of the upheaval, you may be unaware that there are many stocks currently paying some very nice dividends.While dividend-paying stocks should not represent the totality of your income investing, neither should they be ignored.What follows are three suggested dividend stocks to incorporate into a portfolio that you've smartly geared (hopefully) to helping you get through the tough times.

Penn West Energy Trust (NYSE:PWE) – Penn West is a great example of a Canadian royalty income trust that pays a wonderful dividend.Canadian royalty income trusts…CanRoys, for short…are producers of oil and natural gas that pay what many at first blush see as impossibly-high dividends.The trick of which to be aware here is that CanRoys can pay dividends like this because they do not currently have to pay any corporate income tax on profits, as long as they distribute the vast bulk of them to shareholders.That said, Canada has passed a law, effective 2011, that requires CanRoys to be taxed like any other corporation at that time.For now, though, don’t sweat it – that’s still a few years away, and there’s dividend income for you to reap ‘til then.Current yield: 13%.

Windstream Corporation (NYSE: WIN) – Windstream is a company that provides telecommunications services in more rural communities throughout the United States.Buttressing the stock’s attractive yield is its low P/E ratio in comparison to such stalwart competitors like U.S. Cellular and MetroPCS, which suggests it is undervalued, a good buy, and thus capable of attracting investors for some time to come.Current yield: 8%.

AT&T Inc (NYSE: T) – We all know AT&T; it is, of course, a communications giant, supplying goods and services on behalf of that industry to the U.S. as well as 240 other countries.Currently, although the stock enjoys very strong growth prospects, the beta of AT&T is just over 1, which means the stock is essentially no more and no less volatile than the stock market as a whole.All things considered, including its heavy multinational exposure, resiliency in the face of a slow economy, and success in becoming the number one provider of mobile communication and DSL broadband services in America, AT&T is an example of a highly sound company to consider for your dividend needs at this time.Current yield: 5%.

You likely noted that that each of these companies has a dividend yield that varies a bit from the others.I believe that just as it’s smart to diversify your holdings in terms of things like asset class and industry, so is it smart to consider diversifying among dividend stocks on the basis of yield.While there are a number of stocks presently paying double-digit as well as high single-digit yields, you have to remain mindful of the anticipated sustainability of the dividends, as well as the issue of continued viability of the company as an attractive investment for some extended period of time.The three companies noted here together pay an average yield of 8.6%, which is terrific, and give every indication that they will remain strong stocks for the foreseeable future.Create for yourself a nice mix of dividend stocks like these that pay a variety of quality yields, incorporate that mix as one part of a multi-faceted strategy to generate income throughout this economy, and I think you’ll be very pleased with the results.

July 17, 2008

When I said in a previous column that I wasn’t remotely rattled by a stock market (DJIA and S&P 500 indexes) that was down just 9% (at the time) from its all-time high, some worried respondents took heart and thanked me for my expression of “grounded confidence,” as one fellow called it.Now that the market is down roughly 20% from that zenith, some of these same folks are asking me, sarcastically, if I still remain as confident.

My answer?Absolutely; what’s more…this is the time, one better than any other in a long time, for the prudent, astute, and wealth-seeking investor to buy.

As I’ve noted before, I remain puzzled why stock, in general, is the one commodity that people are all for aggressively consuming when it’s at dizzyingly-high price levels, and just as dedicated to aggressively selling when it’s approaching striking lows.You would never think of doing that with your house; why would you adhere to such a cycle with stocks, assuming your portfolio is made up of good, solid companies (or baskets of companies, in the case of mutual funds)?As to my aforementioned confidence, it’s not placed in the belief that the market will soar anytime soon…but in the belief that it will soar again in the future; are you in or out?

The continued pounding absorbed by the stock market has presented you with an opportunity to pick up all kinds of stocks and stock mutual funds at gigantic discounts from where they were perched just a few months ago.How about Dow 30 representative 3M (symbol: MMM), which is now down 20% from its 52-week high and currently earning a “buy” rating from several well-known industry analysts, including TheStreet.com and Ford Equity Research?As for mutual funds, I have always felt that the Third Avenue Value Fund (symbol: TAVFX) was a sound addition to just about anyone’s portfolio.Despite having to be inclusive of the market’s dreadful performance of late, the fund’s average annualized return is roughly 15% per year since inception (1990), and is now…for a limited time, folks…available at a 30% discount from its 52-week high.I mention these investments not as recommendations, but rather as examples of good, sound equity opportunities…nothing fly-by-night here…available right now for the investor willing to smartly embrace that from which all others seem to be fleeing at present.Granted, it does take a measure of courage…guts…to walk into the burning building when everyone else is happy to be out, but if you ultimately want to be the hero to your own portfolio, this is how it’s done.

Am I calling a market bottom?No.I don’t have a crystal ball, nor do I believe in even wasting much time trying to determine such a thing.I am an investor, and I am a friend to investors, which means that my consistent focus is on trying to see value within a market, regardless of whether a broad index is itself way up or way down.Additionally, I would suggest averaging yourself in over the next several months, so that you help insulate your monies from further short-term volatility as you invest.That said, there appears to be a LOT of value available presently, so if you happen to be one of those IndyMac depositors who now realizes that banks may not always offer the benefit of rock-solid safety to go along with those enticingly low returns, don’t fret…because a better repository for your long-term money can be found today on Wall Street…if you have the guts to be rich.

July 08, 2008

Retailers are not classic defensive issues by any stretch of the imagination, but if there is one, it is the 800-pound gorilla in the room we’ve long been calling by its given name: Wal-Mart.

Witness the performance of the retail giant in an economy that is somewhere between unpleasant and outright recessionary: In a climate that has seen retailers all over the country slam shut their doors and add workers to the unemployment lines, Wal-Mart continues to motor along. The company retains the capacity to cut prices aggressively, and shows no disinclination to doing so when it’s time to win over the consumer.At this writing, Wal-Mart’s share price is less than a dollar away from its 52-week high, and this at a time when seemingly every other stock out there is hitting new lows with a resounding thud.

We’re all familiar with the usual staples of defensive investing…utility companies, drug companies, food companies; manufacturers of all the stuff you need, no matter what happens.Wal-Mart is not a manufacturer of any defensive products, but is becoming perhaps the best place, in terms of price, to buy a lot of those defensives; the company remains the leading grocery retailer in the United States, and Wal-Mart is still roaring along with its $4-per-30-day supply program of over 360 drugs.

The point is that every bit as important as the companies that manufacture the “gotta haves” are the few companies that make those products available at affordable prices…and Wal-Mart remains at the top of that list.

The string of Consumer Price Index readings so far here in 2008 indicates only better days ahead for Wal-Mart; that measurement has been climbing just about every month this year (it was flat in February), and does so largely on the basis a rise in food and health care costs…goods that remain a great deal at Wal-Mart.

I have never fashioned myself a classic Wal-Mart shopper, but times have changed.Money is tight for everyone these days, and while I don’t love every aspect of the Wal-Mart shopping experience, I am driven to spend my money there in an effort to save money…and I’m not the only one.I’ve spoken to many Wal-Mart shoppers who said that while they don’t like certain things about the company itself (Wal-Mart has a somewhat checkered history in the area of employee relations, and many people resent Wal-Mart’s crushing presence on small, local businesses), they shop there anyway because, well, principles invariably take a back seat to the wallet when it comes to surviving in bad economies.

The key to Wal-Mart’s continued success is going to be the degree to which the company can permanently win over the customers who are now shopping there, in their own minds, only temporarily.As I said previously, you can count me as one of the many who don’t particularly enjoy the overall shopping experience, but if Wal-Mart can change that so that those who are just “stopping by” for now will remain when the economy is functioning again on all cylinders, you may well have a company…and a stock…that is strong in good times…and even stronger in bad.Good luck in finding another one of those.